Medical scheme brokers’ advice and services should be better valued
Health Minister Aaron Motsoaledi’s proposal to get rid of medical scheme brokers is premature and fails to acknowledge the value of their advice, healthcare advisers say.
Butsi Tladi, the chairwoman of the healthcare exco for the Financial Intermediaries Association (FIA), says the minister has oversimplified the role that some 8,000 brokers play and it is not possible, as he suggests, for the medical scheme regulator, the Council for Medical Schemes (CMS), to do the work brokers do.
Both the FIA and the Financial Planning Institute (FPI) plan to provide feedback on the minister’s comments, but the Medical Schemes Amendment Bill, released last week, does not, in fact, contain proposals to get rid of brokers, who are paid some R2.2bn by medical schemes.
The bill amends the definition of a broker and a broker service, making it clear that if a fee is paid to a broker on a consumer’s behalf, even if contracted by their employer, it must be with explicit consent.
If the comprehensive service benefits are less than the current prescribed minimum benefits, members will have a greater need for advice on the increased financial risks they carry if they want to use private healthcare services.
Medical scheme members whose schemes pay medical scheme brokers that don’t contact them from one year to another — and the minister believes it is at least two thirds of members — should welcome this proposal. It is also in line with the proposals in the retail distribution review that looks to make payments to advisers and product providers in the insurance and investment industries more transparent.
More than a decade ago, the CMS issued a discussion document proposing that schemes stop paying commission to brokers and that members who want to use brokers do so at their own cost. However, Dr Sipho Kabane, the acting registrar of medical schemes, says the proposed changes are not intended to take payments to brokers outside the scheme. Although the bill does propose that the amount paid to a broker must be displayed in a scheme’s contribution table, it will not be cheaper for client to not use a broker.
Currently, members and employers who subsidise contributions rely on good medical scheme brokers to not only identify schemes that are financially viable, but to undertake the hard work of comparing benefits between schemes and options. But if benefit options are simplified, the role of brokers may change.
Shivani Ranchod, actuary and CEO at consultants Percept, says it is currently almost impossible for members to compare scheme options as their benefits, treatment protocols and formularies all differ. The CMS is, however, considering ways to standardise medical scheme benefit options, which will make it easier for consumers to compare schemes.
Ranchod says experience in other countries has shown that when benefits are standardised, schemes compete on service and price rather than benefits and it is easier for consumers to compare these attributes.
Kabane says if the minister wants to abolish payments to brokers, he is happy for the savings to be passed on to members, but the council would have to strengthen its efforts to educate members and would require increased capacity to do so.
Tladi says it is naive to assume the CMS can fulfil this role and meet the level of service brokers provide. She says that while the new definitions of brokers and broker services in the Medical Schemes Amendment Bill are an improvement, the bill fails to align the advice function that brokers fulfil to the requirements of the Financial Advisory and Intermediary Services (FAIS) Act.
She says a good broker will help identify a consumer’s healthcare needs as part of their bigger financial plan and give ongoing advice when, for example, scheme protocols, designated providers or formularies change, such as when an adult child needs to register on a scheme in their own name. They also play a big role assisting employers, and some large employers are assigned a full-time broker.
Even if scheme benefit options are standardised and reduced to four or five options, members will still need human or at least robo-advice, Tladi says. If the role of the broker is taken within schemes, it will have a very negative effect on small schemes.
Within employer groups, there are some general cross-subsidies as brokers serving groups hold group sessions and take time to explain the scheme options, benefits, late-joiner penalties and how to reduce contributions to new members, often in multiple languages.
Both Tladi and David Kop, head of public policy and consumer affairs at the FPI, say if employers do not have the support of brokers paid by medical schemes, employers may be willing to pay for the service. He says the FPI believes there is still a role for healthcare brokers and will engage the council and the minister on this and why they should be careful about cutting brokers out.
Members have the right to ask to be advised and to employ someone who has the skill to do so.
Jill Larkan, head of healthcare consulting at GTC, says if the comprehensive service benefits are less than the current prescribed minimum benefits, members will have a greater need for advice on the increased financial risks they carry if they want to use private healthcare services.
Brokers acting under the FAIS Act would need to make full disclosure to members who joined a scheme believing they had one kind of cover but then find it changed through legislative amendments.
Payments to brokers
Brokers can be paid a maximum of 3% of consumers’ monthly contributions up to R90, and no commission should be paid if a broker is not used or if a scheme has been asked to cancel the payment to a broker.
When an employer contracts a broker on behalf of employees, they may be unaware that the broker is acting for them and the commission may continue to be paid after people leave an employer. However, if employees are not satisfied with the services of a broker or they leave an employer, they can instruct the medical scheme to terminate commission payments to that broker and can appoint their own.